Blog Review 867

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What if, given the question that Alan Greenspan faced, there was acually no right answer?

We've had the Russian economy as both tragedy and farce: what do we call the third time around?

Does aid to poor countries help or create a form of welfarism?

A test of how liberal one might be. How far should that State interfere in private contracts: and how far should those contracts be defined by the State?

A heartfelt thanks to the way that British journalism works.

One way of calculating bank bonuses.

And finally, setting the bar.

Drugs: come down off your high horse

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The government's drug tsar, Professor David Nutt, has caused a furore by commenting in a scientific journal that the club-drug Ecstasy is about as dangerous as riding a horse.

He's probably right. I've seen the lives of young girls ruined through an addiction to ponies. Their minds seem to turn to equine mush. And of course falls from horses can and do kill or paralyze people – as in the case of Superman actor Christopher Reeve.

But I'm not proposing that horse riding should be made a Class A activity. (I'm sorry I mentioned that idea: it can't be long before the government starts banning dangerous sports and withdrawing NHS care from those who ride motorbikes or go mountaineering.)

Professor Nutt might have been unwise to mention the comparison, but some rationality in the debate on drugs is devoutly to be wished. When I thought that my teenage son might be taking drugs at school, I asked a neighbour, a clinical psychologist, for advice. His view was that schools were rife with drugs, but that most of them were far less harmful than alcohol and cigarettes. It put things into perspective.

It's only when we can actually discuss the real risks of drugs that we will be able to advise young people on how to handle them. But the government seems to be more concerned by the outrage of the Daily Mail than the facts. It spreads the misconception that all drugs are as bad as heroin or crack – driving the others underground and making them more difficult to control. As a policy, it's failed.

True, many modern drugs haven't been in common use very long, so it's difficult to know their full medical and psychological effects. Even with drugs that have been around for years, like cannabis, we are still learning the full physical, psychological and social consequences. So maybe we are right to be cautious about them. But let's be honest: because then, at least, we can steer people away from the most damaging drugs by giving them a genuine profile of the risks.

Digital despots

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The long awaited report, called euphemistically Digital Britain, has been launched with a rather vainglorious opening paragraph. It reads like a noble goal to better the internet for all British users.

“An action plan to secure the UK’s place at the forefront of innovation, investment and quality in the digital and communications industries will be developed by Stephen Carter, the first Minister for Communications, Technology and Broadcasting."

In fact, Lord Carter, a firm believer in the big government New Labour mantra, is aiming for his quango to further erode the private enterprise that is internet provision. Now Internet Service Providers (ISPs) will have to spy on their users. In effect, this report aims to nationalize ISPs as part of the security services.

Being a government backed idea, you will have to pay the quango £20 a year so they can make ISPs spy on you while limiting their ability to provide you with the best service they can.

“To bring industry together to agree how to provide incentives for legal use of copyright material; work together to prevent unlawful use by consumers which infringes civil copyright law; and enable technical copyright-support solutions that work for both consumers and content creators."

A sensible government would poll broadband users, and providers to find out what problems exist in internet provision. To most it would probably show that if you use anyone other than BT there is some foot-dragging when it comes to their parts of the internet network (ie: exchanges for ADSL).

Gordon Brown has written in the Times praising this socialistic digital plan. Then again one would expect him to be pleased to see a further expansion of government meddling in the business of the private companies and citizens of the UK.

New tax, new meddling, new erosion of liberties.…in other words typical New Labour.

Fallout from the boom

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A friend of mine in Washington DC has just remortgaged his home, to take advantage of falling interest rates. Mortgages in the US tend to be fixed-rate, unlike the variable-rate loans we have in the UK. So if rates fall, you get a new loan at a lower rate and pay off the old one.

But my friend found a new line on the application form. He had to agree to give his lender access to his tax records. The reason is that in the boom, many borrowers simply made up their income figures when applying for loans. Often they would download the IRS tax form and just fill it with fanciful information. Sometimes, lenders would just ask them to scribble their income down on the loan application form, but it would never be checked.

Now you might think that if you were lending a large sum to someone, you'd want to be pretty sure that they could repay. Even if you could repossess their home should they default, that's a cost and nuisance you could do without. But in fact the lenders made a rational calculation. All their computer models showed that checking people's real financial circumstances was a waste of time. It didn't make much difference. Most people would actually make their mortgage payments. Delving into the details of their income and other outgoings was a waste of costly staff time.

They were undoubtedly right. But that was when everything was booming. While house prices were soaring, credit was easy, and jobs were plentiful, not many people defaulted, even those who fibbed about their real income. The trouble was that when everything went sour, people defaulted in legions.

The banks' error was the same as everyone's error. We actually believed that the boom was real. That we really had learned how to abolish slumps and run a continually expanding economy. I don't think you should blame the banks for the inevitable outcome of this hubris; you would be better blaming the politicians, monetary authorities, and regulators who created it in the first place.

Blog Review 866

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What Adam Smith actually said about the banks....and can we please put this "invisible hand" thing to rest?

With Alex Renton's misunderstandings of the food market there's a certain wonder that he manages to remain nourished.

My word, this anti-terrorist legislation is effective, isn't it?

If certain economies (say, Continental European) have structurally higher rates of unemployment than others (say, Anglo Saxon or even Nordic) then that rather damages the Keynesian case that unemployment comes from a lack of aggregate demand, doesn't it?

A reminder to those who argue for higher taxes: you can always raise your own voluntarily, you know? (HMG runs a similar scheme, cheques to "The Accountant", 2 Horse Guards Road).

Wouldn't it be interesting if we had a truly "accountable" government?

And finally, what they are spending those unaccountable higher taxes on. Charlatans.

The new banking crisis

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Just as you thought the banking crisis was over, another one streaks towards you. The £6bn profit announced by Barclays must be relatively good news, even though bank accounts are always complicated and this set has some one-off features that might boost the bottom line. But at least we seem to have got through the fear that the banks could simply collapse. A 'toxic bank', mopping up the remaining bad debt, might help further. Now we're just in a pretty normal, if nasty, recession.

The new banking crisis, though, is political interference. The state now owns large chunks, even majority chunks, in some of our biggest high-street banks. The politicians who arranged this initially said they had no desire to interfere in how the banks ran their business. I said at the time they wouldn't be able to resist. I was right.

The public can't see why a sector that nearly brought us to collapse should be paying its operatives bonuses of thousands, even millions. It may be that they are legally obliged to; that the bonuses are going to high-street branch staff, or to staff selling insurance, rather than executives who made daft decisions. But those details get lost. Yvette Cooper on the radio was even saying of the banks' legal contractual obligations to pay staff bonuses: 'That's something we must look at...these are unusual times.' Yes... and it's not unusual, of course, for politicians to tear up legal contracts when they find it convenient. In evidence I cite habeas corpus, trial by jury, parliamentary privilege, double jeopardy, the right to silence, and the presumption of innocence.

Bankers have indeed made serious mistakes, though a surprising quantity of them were made on the wave of euphoria and cheap credit created by – you guessed it, the same politicians who are now telling the bankers how to do their jobs, despite utterly messing up on their own.

Back off

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The latest, in the ongoing pursuit of this government to compile complete information on the lives of the people, is the news that the government is compiling a database to track and store the international travel records of millions of Britons.

Names, addresses, telephone numbers, seat reservations, travel itineraries and credit card details of travelers will be stored for up to ten years. The e-Borders scheme covers flights, ferries and rail journeys. Officials hope that by the end of next year, 95% of the 250m annual passenger movements will be logged in the database.

This is the type of action that the Lords cross-party constitutional affairs committee recently warned against when condemning the government for risking undermining the fundamental relationship between the state and citizens. If you ask me, this line was well and truly crossed a long time back. The same report claimed that “many of these surveillance practices are unknown to most people and their potential consequences are not fully appreciated". Perhaps, though much of this gets a fair few column inches in the popular press and given the near-unanimous popular discontent over the ID cards, it cannot be said that people are unaware that their liberties are being usurped.

As with all fights for freedom against injustice, a few good souls will have to lead the rest. The campaigners and supporters of NO2ID, Privacy International and Liberty have clearly marked their territory as being at the vanguard in the counteroffensive against the government’s assaults upon our liberties. Their fights clearly have the support of the vast majority of individuals living in this country.

This government’s utilization of the technology of totalitarianism must not prevail; the state has no business watching us. They say that it is for our protection and security, but I am surly not alone in not wanting Jacqui Smith and the plethora of taxpayer funded good for nothing officials watching my back.

Capitalism and morality

It is clearly not a system of "winner takes all", but one in which winners take a fair sum for their results (i.e. they actually win when they win), and the numbers of winners is maximised. These winners then help create more opportunities for others and the system provides the aligned incentives to maximise successes. The adoption of more capitalism has enriched the world, and in India and China, markets have enabled a greater number of people to escape poverty, than government planning ever will.

The record of history is clear, and the temptations must be avoided. Now is the worst time to pursue theories, that when implemented, even in part have produced and would require terrible oppression, economic stagnation, the destruction of freedom; failure in almost all regards, with the honourable exception of the production of hard liquor to substitute for water and null the pain. Under variants of socialism and communism, there were more deaths than in all the wars of the 20th century (as a direct result of government oppression) and under all significant indicators, these experiments failed to compete with the freer nations.

Optimism tells us that Mr Cameron argued for moral capitalism, as an appeal to popular opinion, rather than because of misguided beliefs. The threat against free people, free markets and freedom is always great, and the tide must not turn. Moral Capitalism is just plain simple Capitalism.

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The emergence of the meaningless phrase ‘moral capitalism’ in the political world is worrying. The words ‘moral’ and ‘capitalism’ have limited validity in the same sentence, except to declare that Capitalism is the most moral and valuable system yet discovered. Cameron need not make a radical deviation to make Capitalism moral.

Whilst the world has been hit by economic crisis, this is not the fault of Capitalism. Firstly, very few people live under Capitalism; government expenditure in the UK is 49% - half-and-half. Secondly, the world and people are not perfect, thus markets are not perfect, but more moral and produce better results than any proposed alternatives. Thirdly, Governments and Central Banks played a role in the current mess: from interest rates below the natural rate, to encouraging poor financial practices and partaking in consistently and protractedly incompetent behaviour.

Capitalism is the only the system that maintains liberty, allows true individual autonomy, respects the choices of people, and enable us to achieve genuine freedom. It is the system most allied with the concept of civil liberties, enabling individual rights. This autonomy and freedom is intrinsically moral.

Capitalism is also the most practically effective system and efficient economic model. Autonomy and freedom is a necessary condition for long-term prosperity. Capitalism brought the industrial revolution, and has since promoted economic growth, and raised standards of living to unforseen levels of prosperity. The potential for wealth generation is maximised, and decentralised coordination allows development and adaption. Not only is it the best wealth-creating system, but also benefits the greatest number of people, and fairly allows them a chance to generate a larger slice of the growing economic cake: a land of hope where anyone can ‘make it’. [Cont'd - click 'Read More']